Moldova: Time to Accelerate Reforms

Qimiao Fan, World Bank Country Director for Belarus, Moldova and Ukraine

Moldova has made important progress in its development in the past ten years. The economy grew on average by 4.7 percent, while the poverty rate was reduced from 29 percent in 2003 to 16.6 percent in 2012. The country has weathered the global economic crisis well, and with continued prudent macroeconomic management it is expected to post a 5.5 percent GDP growth in 2013. Moldova can also boast near-universal access to education and significant progress in combating infectious diseases. In recent years, it has laid the foundation for a more sustainable social assistance system that better targets benefits to the poor. As a result, from 2009-2012 the share of targeted cash transfers in overall social assistance spending increased from 9 to 31 percent.

Notwithstanding these achievements, Moldova remains one of the poorest countries in Europe. Its Gross National Income of US$2,250 in 2012, despite increasing fourfold since 2002, is only a quarter of that of its western EU neighbor Romania. GDP growth has been volatile and vulnerable to economic shocks and it has been jobless. The country ranks 89th out of 148 economies in the World Economic Forum’s Global Competitiveness Index 2013-14. The quality of education and health services remains low, and this most affects the poorest. According to the 2009 Program for International Student Assessment, Moldova remains at the bottom of European rankings in terms of quality of education, with around 60 percent of students lacking basic levels of proficiency in reading and math, and students in rural areas in particular doing much worse. Adult mortality rates for people aged 15-60 are on average 50 percent higher than in the EU, while the incidence of mortality from chronic diseases is high. In addition, agricultural productivity remains relatively low and growth has been constrained by frequent extreme weather events.

To sustain recent progress and overcome the remaining challenges, Moldova must accelerate reforms in a number of areas.

First, Moldova must increase the competitiveness of its private enterprises by further streamlining the business environment, improving effectiveness of public institutions, and ensuring access to longer-term finance, especially for small- and medium-sized firms. Of critical priority is the need to strengthen financial sector stability and transparency. Recent events surrounding Banca de Economii and raider attacks on other commercial banks have highlighted the urgent need to have strong and independent regulators who can ensure adequate supervision and take swift enforcement action, when needed.

Second, it must continue to improve the quality of education and health services, address the demographic challenges and protect the poor and vulnerable. This will be attained only through resolute and determined efforts to improve education and health institutions; the quality of personnel; and effectiveness, efficiency, and equity of public expenditures.

Third, it must address the debilitating effects of climatic events on agriculture and rural livelihoods, improve natural resource management, and ensure sustainable development through enhanced energy efficiency and security. These actions will protect the most vulnerable and boost the country’s resilience in the face of external shocks.

Most important, Moldova must redouble its efforts to improve governance, transparency, and accountability of all public institutions, and to combat corruption. This is essential for reducing poverty further and boosting shared prosperity in the country.

Initialing of the Association Agreement and the Deep and Comprehensive Free Trade Agreement with the EU at this month’s Vilnius Eastern Partnership Summit provides an historical opportunity for Moldova to accelerate reforms. We at the World Bank Group stand ready to support Moldova in making the country a truly better place for all of its citizens.

Qimiao Fan, World Bank Country Director for Belarus, Moldova, and Ukraine